Code Red: Two Economists Examine the U.S. Healthcare System

April 6, 2010

Joel Shalowitz on What Health Reform Means for Doctors

Filed under: Uncategorized — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 2:07 pm

My colleague Joel Shalowitz, MD and health management educator, offers the following perspective:

On March 23, 2010, the President signed the Patient Protection and Affordable Care Act (PL 111-148). In addition to patients, many other stakeholders will be affected by this legislation. One key group is physicians. Of course, any of the financial aspects of this law will affect doctors; however, there are some features that will have a direct impact. Below are some portions of the law that I believe will have particular significance.

One of the main provisions for which “organized medicine” has lobbied is tort reform. Beginning in fiscal year 2011, the law provides for five years of funding for demonstration projects. Unfortunately, the language is vague about what would ultimately be acceptable. Further, although the law most closely follows the Senate version, it is noteworthy that the House provision on tort reform specifically excluded caps on lawyer fees and non-economic damages. Given the large donations by trial lawyers to the Democratic Party, it is unlikely there will be significant tort reform anytime in the near future.

Starting in 2013, Medicare will start a three-year demonstration project that will bundle physician and hospital payments together. While such projects already exist, this measure will significantly expand them. This plan will require major organizational changes in physician-health system integration, potentially causing acceleration in hospital acquisition of physician practices and physicians becoming employees of systems. A related provision mandates increased disclosure of financial relationships among healthcare entities, with a report due to Congress April 1, 2013.

Given that over 30 million people are suddenly going to be insured, there is major concern about access to care. Massachusetts has provided a good example of this problem. According to the Boston Globe September 22, 2008: “The wait to see primary care doctors in Massachusetts has grown to as long as 100 days, while the number of practices accepting new patients has dipped in the past four years, with care the scarcest in some rural areas.” In order to ameliorate this problem, the law addresses two issues: payment and manpower availability. First, Medicaid payments will be set at 100% of the Medicare rates for 2013 and 2014, with the federal government picking up all of the increases to reach these targets. Further, in setting Medicare rates, there will be a 10% bonus payment to primary care physicians for five years beginning January 1, 2011. Given this projected federal subsidy, and in view of the fact that states are already cash-strapped, it is likely that states will reduce payments prior to the date when those subsidies begin, thus making it less likely physicians will participate in Medicaid in the short run. On the manpower side, the law provides for subsidies to graduate medical education programs training primary care physicians. While it is commendable that Congress recognizes the shortage of these physicians, it needs to look at other short-term alternatives over the next 7 to 10 years as more of these physicians enter the workforce.

Finally, it is important to also look at what is not in the law. The Balanced Budget Act of 1997 mandated that physician payment be subject to cost targets. If those targets are exceeded in one year, payment must be reduced the next year. If the costs are not immediately fixed, they accumulate and must be reconciled at some future date. That date is now. If Congress does not pass another fix or repeal that provision, Medicare will drop physician fees by 21.2%, or about $247 billion. The fee freeze was extended to April 1 (from January 1 and then March 1) and, at the time of this writing, CMS instructed Medicare carriers to hold payment for a couple weeks until the issue is sorted out. The American Medical Association had hoped that, in exchange for its support, health reform legislation would repeal this formula. Of particular importance is that private insurers often used the Medicare fee schedule as a basis for paying physicians; therefore, any governmental actions will significantly impact the private sector as well.

Many other issues concerning physicians remain, such as funding for electronic medical records and the effect of quality reporting initiatives. Stay tuned.

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